Question

You are purchasing a 25-year, zero-coupon bond from Gem, Inc. The yield to maturity is 8.68% and the face value is $1,000. What is the current market price?

PLEASE TRY TO BE A SIMPLE AS POSSIBLE, preferably using excel!

Answer #1

Market price of zero coupon bond |
$ 124.81 |
|||||||||||

Working: | ||||||||||||

Zero coupon bond does not pay coupon interest.So, price of zero coupon bond is only present value of face value. | ||||||||||||

Present Value of face Value of bond | = | Face Value *(1+i)^-n | Where, | |||||||||

= | 1000*(1+0.0868)^-25 | i | Yield to maturity | 8.68% | ||||||||

= | $ 124.81 | n | number of period | 25 | ||||||||

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